Transcript An Introduction to Ecological Economics

Doctoral Program and Advanced Degree in Sustainable Energy Systems
Doctoral Program in Climate Change and Sustainable Development Policies
Doctoral Program in Mechanical Engineering
Doctoral Program in Environmental Engineering
Sustainable Development, Energy and Environment
Lecture 05
Paulo Ferrão
Full Professor
Tiago Domingos
Assistant Professor
Rui Mota
Researcher
IN+, Centre for Innovation, Technology and Policy Research
Environment and Energy Scientific Area
Department of Mechanical Engineering
“Empty World”
Costanza, R., J. Cumberland, H. Daly, R. Goodland, R. Norgaard (1997). An
Introduction to Ecological Economics. St. Lucie Press, Boca Raton, FL, USA.
“Full World”
Costanza, R., J. Cumberland, H. Daly, R. Goodland, R. Norgaard (1997). An
Introduction to Ecological Economics. St. Lucie Press, Boca Raton, FL, USA.
Main Issues in Sustainable Development
• Scale
– Ecology;
– Environmental dimension of sustainability
• Distribution
– Ethics and Sociology;
– Social dimension of sustainability
• (Allocative) Efficiency
– Economics;
– Economic dimension of sustainability
• Constraints
– Thermodynamics
– Institutions
– Knowledge
Value and Indicators
• Economic
–
–
–
–
Valuation techniques
National Accounting and Macroeconomic Variables
Genuine Savings
Green Net National Product
• Social
– Human Development Index
– Index of Sustainable Economic Welfare
– Gini coefficient
• Biophysical
– Ecological Footprint
– Human Appropriation of Net Primary Production
• Multi-criteria analysis
Sustainable Development in Space and Time
• Theories of growth and sustainable development
–
–
–
–
Solow growth model
Ayres’s theory of growth (the role of energy)
Growth accounting
Weak vs. strong sustainability
• The network dimension: direct vs. indirect effects
– Life Cycle Assessment
– Input-Output (IO) Analysis and Environmentally Extended
IO
• Energy, environment and economic growth
Sustainable Development and Energy
• Energy in Portugal and the World
• Energy efficiency
– New paradigms: from supply to demand
– The rebound effect
– Behavioural aspects
An Integrative Case Study
• Towards sustainable cities, an urban metabolism
perspective
Sustainable Development
• “Development that meets the needs of the present without
compromising the ability of future generations to meet their own need.”
– Intra- and inter-generational equity
– Anthropocentric
• Sustainability of what?
–
–
–
–
non-declining aggregate output or consumption,
non-declining utility,
non-declining aggregate resources (productive base),
non-increasing pollution, …
• Weak vs. Strong Sustainability
– Limits to substitution,
– Is the combined value of all assets remain constant, that is, it is possible to
substitute one form of capital for another, so natural capital can be depleted or
the environment degraded as long as there are compensating investments in
other types of capital?
– Critical levels of natural capital.
Sustainability vs Optimality
• A Sustainable Economic path at time t is one that obeys
where
is the maximum sustainable utility, defined as
• A Present Value Optimal path is one that results from the
maximization of Present Value (PV):

W (0) :  U (C(t ))e t dt
0
• Future utility is being discounted with a constant discount rate d
• Hicks (1946) : Individual’s income “maximum amount of money
which the individual can spend this week, and still expect to be
able to spend the same amount in real terms in each ensuing
week".
Dasgupta-Heal Model
• Capital resource economy with no technological progress:
subject to

Production can be used to consume or invest: F  K (t ), R(t )   c(t )  K (t )
Extraction of a non-renewable resource used in production
• Optimal Path:
Hotelling’s rule
Ramsey’s rule
• Optimal and sustainable?
Discount Rate
Justification and Components
•
The same monetary flow at different instants does not have the same
value (time preference)
– CONSUMPTION: Uncertainty
• Being alive in the future (individual vs. society)
• Preferences in the future
• Value of the benefit or the cost
– CONSUMPTION: Impatience
– PRODUCTION: Capital productivity (opportunity cost of capital)
•
Under certain conditions, the discount rate is equal to the real market
interest rate
consumption
discount rate
pure time
preference rate
C
r   
C
utility
discount rate
.
  pL
variation in survival
probability
per capita consumption
growth rate
elasticity of the marginal
utility of consumption
Turner et al. (1994), pp. 102-106.